TSX extends 2-yr high with broad gains

Specialist trader Chris Malloy (C) gives a price to traders on the floor of the New York Stock...

Specialist trader Chris Malloy (C) gives a price to traders on the floor of the New York Stock Exchange, October 18, 2013. (REUTERS/Brendan McDermid)

Julia Edwards, Reuters

, Last Updated: 2:19 PM ET


The S&P 500 closed at a record high for the second straight day on Friday to cap its biggest weekly gain in three months as stronger-than-expected earnings from Google, Morgan Stanley and others overshadowed worry that earnings growth was faltering.

The reassuring signals on profitability augmented investors' relief over the resolution earlier in the week of the budget impasse in Washington that had threatened to trigger a potentially catastrophic default on the U.S. debt.

The S&P 500 closed up 0.7%, while the Nasdaq rose 1.3% to finish at its highest since 2000. It was the largest daily gain for the Nasdaq in a week.

Google Inc grabbed most of the spotlight, with its shares gaining 13.8% to clear the $1,000 mark for the first time, ending the session at $1011.41. Its rise came a day after the search engine company posted results that beat forecasts and helped lead the S&P technology sector to outperform all other sectors with a 1.8% rise.

Canada's main stock index capped a stellar week with further gains on Friday, extending a two-year peak as industrial and resource stocks gained on data showing the Chinese economy, the world's second-biggest, grew at its fastest pace this year.

Adding to the rosy view for stocks, investors are betting that the U.S. Federal Reserve will delay trimming its stimulus measures due to the economic damage inflicted by the partial U.S. government shutdown that ended on Thursday.

"A lot of Canadian money managers have been sitting on their hands watching what's been happening south of the border and, that having been sorted out, at least in the short term, they are back in the market," said David Cockfield, managing director and portfolio manager at Northland Wealth Management.

"I think this trade deal is encouraging people as well," he added, referring to the signing of a multibillion-dollar trade pact between Canada and the European Union.

The deal will make Canada the only Group of 8 country to have preferential access to the world's two largest markets, the EU and the United States, home to about 800 million people.

The Toronto Stock Exchange's S&P/TSX composite index closed up 99.73 points, or 0.77%, at 13,136.09, its highest level since July 2011. It gained 1.9% on the week, its best weekly performance since July. Air Canada rose 4.6% to $5.19. The airline, which reached a deal to expand its main hub in Toronto, has risen sharply in recent months amid a major expansion push and solid traffic growth.

Investors pushed aircraft maker Bombardier up 1.8% to C$5.08 after it said a Chinese company may double its total order of new jetliners.

"No question the worst is over in China. Things have stabilized and are now on the upswing and that is very important for worldwide growth," said Barry Schwartz, a portfolio manager at Baskin Financial Services. Third-quarter growth in China, the world's second-biggest economy, was 7.8% from a year ago, its quickest pace for the year, thanks largely to investment.

All of Canada's ten main sectors advanced except materials, which was weighed down by retreating gold miners. Some of the biggest gains came from the heavyweight financial and energy sectors.

"If you are sitting on a bunch of cash, you probably slide back into the utilities, the big financials," Northland's Cockfield said.

The financial subgroup rose 0.7%, powered by Royal Bank of Canada. The bank rose 1.1% to C$69.53, pushing its market capitalization above C$100 billion, a first for a Canadian lender. RBC, which along with other Canadian banks has been boosted lately by signs that Canada's housing sector is stabilizing, is currently Canada's largest publicly traded company. Royal, Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada all hit record highs. Baskin's Schwartz said Canada's banks and real estate investment trusts (REITs) have room to rally further.

"Interest rates are now back to where they were before the taper talk, yet the REITs aren't," he said. Riocan Real Estate Investment Trust gained 1.6% to C$25.75 and Dundee Real Estate Investment Trust added 1.6% to C$29.52. Schwartz said that after the distraction of the U.S. debt crisis, investors should be focused on interest rates, inflation and stock valuations, and that each factor was looking prime for improvement in Canada.

"Stocks are still the shiniest gold coin in a tarnished box of treasure," he said. The heaviest fall belonged to Athabasca Oil Corp, which plunged 12% to C$6.13 after a court ruled that an aboriginal group could appeal the approval of an oil sands project.

Google Inc grabbed most of the spotlight, with its shares gaining 13.8% to clear the $1,000 mark for the first time, ending the session at $1011.41. Its rise came a day after the search engine company posted results that beat forecasts and helped lead the S&P technology sector to outperform all other sectors with a 1.8% rise.

"Washington and everything that happened with the budget talks has cleared out, and we are refocusing on earnings. We have companies coming in next week that you think would beat numbers or do pretty well. That should allow this kind of momentum to continue into next week," said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Georgia.

Morgan said he expects Netflix and Apple, whose earnings reports are due next week, to perform like Google because they are new tech, unlike International Business Machines, which reported low revenue from earnings growth on Thursday.

Should Morgan's view bear out, it could help lift a fairly bleak outlook for third-quarter earnings, which are expected to show year-over-year growth of just 2.1%, less than half the second quarter's 4.9% and the lowest growth rate in a year.

U.S. stocks caught an updraft beginning Wednesday when it finally became clear that Congress would vote to end a 16-day partial shutdown of the government and extend the federal government's borrowing authority. Republicans seeking to derail President Obama's signature healthcare law had been refusing to lift the statutory debt ceiling, leaving the U.S. Treasury just days from being unable to pay the nation's bills.

The market's rise was also aided by expectations that the Federal Reserve will delay trimming its massive stimulus measures due in no small part to the damage inflicted on the economy by the government shutdown, which ended on Thursday.

"Truthfully most of this is the market pricing in the high likelihood that there will be a continuation of monetary policy through the spring," said Jeff Buetow, chief investment officer at Innealta Capital in Austin, Texas, which manages $3 billion in assets.

The Dow Jones industrial average was up 28.00 points, or 0.18%, at 15,399.65. The Standard & Poor's 500 Index was up 11.35 points, or 0.65%, at 1,744.50. The Nasdaq Composite Index was up 51.13 points, or 1.32%, at 3,914.28.

For the week, the S&P gained 2.4%, the Nasdaq gained 3.2%, and the Dow Jones industrial average gained 1.1%. For the S&P and Nasdaq, it was the largest weekly gain since mid-July.

The temporary resolution of the budget standoff in Washington also prompted the biggest weekly decline in the CBOE Volatility Index in seven months. Wall Street's favored gauge of investor fear fell 17% on the week to finish at its lowest end-of-day level in two months.

Health was the only declining S&P sector, down 0.5%, on predictions from UnitedHealth that the new healthcare law's provision to decrease private Medicare payments could hurt earnings. UnitedHealth shares fell 3.2% to $69.08.

Morgan Stanley shares rose 2.6% to $29.71 after the company reported a 50% rise in quarterly revenue as higher income from equities sales and trading offset a drop in its fixed-income business.

General Electric said its third-quarter profit and revenue fell as its finance business shrunk, but Wall Street looked beyond those numbers to GE's improving profit margins and growing order demand. GE shares rose 3.6% to $25.56.

Of the 98 companies in the S&P 500 that have reported so far, 62.2% have topped Wall Street's earnings expectations, just shy of the 63% average since 1994 but below the 66% beat rate over the past four quarters, according to Thomson Reuters data through Friday.

On revenue, 53.1% of the S&P 500 components have beaten expectations, short of the 61% rate since 2002 but above the 49% beat rate over the past four quarters.

Volume was slightly above average at 5.57 billion total shares traded. (Reporting by Julia Edwards; Editing by Leslie Adler and Kenneth Barry)